Skechers USA (SKX) is trading modestly higher today after reporting Q1 earnings results last night and guiding lower for Q2. In case you're not familiar, Skechers makes footwear for men, women, and children. It primarily sells wholesale via department stores and shoe stores (Foot Locker, Finish Line, Famous Footwear) but it also has its own retail locations and it sells shoes online. In terms of pricing, SKX sees itself as being in the sweet spot between private label and the big guys (Nike etc.)
SKX has been making strides in recent years by revamping its product offering with enhanced designs and comfort innovations. Also, SKX's higher-end performance shoe segment has been doing well. And they are expanding very nicely in international markets, particularly in China. They are also benefitting from an industry trend toward athletic shoes.
What strikes us about SKX is that they seem to successfully appeal to various age groups, from kids to teens to adults, and both men and women. It's rare that kids would want to buy shoes that their older parents would buy. However, SKX seems to walk this tightrope quite well whereas many other footwear/apparel companies stumble. It's a nice place to be in. It's partly due to signing endorsement deals with various celebrities who appeal to different age groups. Current sponsors include Rob Lowe, Meghan Trainor, Joe Montana, Howie Long, Sugar Ray Leonard, Brooke Burke-Charvet and Kelly Brook. So you can see the various age demographics.
Turning to the Q1 results, EPS declined to $0.60 from $0.63 in the prior year period. However, that was quite a bit better than prior guidance of $0.50-0.55. Revenue rose 9.6% year/year to $1.07 bln, at the higher end of prior guidance of $1.05-1.075 bln. Of note, this was the first time in SKX's history that it topped the $1 bln mark in quarterly sales. In terms of guidance for Q2, SKX expects EPS of $0.42-0.47, which is below market expectations. They expect Q2 revenue of $950-975 mln, which is in-line with market expectations.
Sales growth of +9.6% was supported by a +16.8% increase in its international wholesale business and a 12.8% increase in its company-owned global retail business which included comparable same store sales increases of +2.9%. SKX says it's proud of this growth considering the tough comparison to 1Q16, which benefitted from an extra day in February and Easter falling in March. Its domestic wholesale business was roughly flat as it shipped 4.5% more pairs YoY but average price per pair decreased by 4.8% due to stronger sales in its lower-priced lines including BOBS from Skechers and its sandal business.
In sum, this was a mixed quarter for SKX. They reported nice EPS upside but the Q2 EPS guidance was weak. With that said, SKX has a history of lowballing EPS guidance so we would discount that to some extent. For example, when they guided for Q1 in February at $0.50-0.55, that was well below market expectations at the time but then they reported strong upside. The stock has had its ups and down over the past year, but hopefully the stock can get back on a sustained upswing later in 2017.